While a first class of technological innovations are characterized by a relatively uniform cost to advantage factor over a range of small to medium-sized enterprises and beyond to larger enterprises, a second class of technological improvements, because of their relatively high cost, are susceptible of practical implementation only in large enterprises. Examples of the first class include such things as word processing, power tools, and so forth. More expensive technological innovations, such as large trucks, specialized manufacturing machinery, and other systems having a relatively high-volume throughput require substantially larger businesses to make cost-effective use possible.
In many businesses, the achievement of a minimum enterprise size is necessary in order to both deliver goods (and/or services) at competitive prices and generate the income necessary to pay workers higher salaries. Thus, increasing the size of an enterprise may be nothing less than a survival strategy. In the past, many businesses have designed various strategies for increasing their size. For many years, manufacturers of food products used coupons as a means to build their businesses.
Coupons can be mailed to new sales prospects. Likewise, coupons contained in boxes of products and good for the consumer's next purchase of the particular product in the box, or for the purchase of other products made by the manufacturer are a good means of building consumer loyalty.
Consumer loyalty is a very important factor, because, by delivering value to customers, businesses can reduce the cost of advertising, as well as other marketing costs, thus driving down the cost of bringing goods to market, delivering more value and instilling still greater loyalty. In principle, if the business has reached a mature size for a given marketplace, it need not expend marketing dollars to build its customer base. Rather, the expenditure of marketing dollars may be limited to that necessary to maintain market share in the face of otherwise unavoidable attrition, such as consumers moving out of the market area of the company, changing consumer tastes beyond the range of the organization to accommodate (for example, a change in a particular consumer's free time interest from television to oil painting), or the like.
As alluded to above, advertising is a principal means for enterprises to build and maintain market share. The problem with advertising is that it is broadcast to a wide diversity of people which, while it may include many real potential customers, also includes many non-prosp. The advertiser must pay the cost of reaching all these individuals. Moreover, advertising by its nature is self-limiting in many businesses, in the sense that prime prospects may not be in frequent enough contact with principal media on account of various lifestyle reasons including growing children, job pressures, physical disabilities and so forth.
Coupons have the possibility of solving some of these problems. For example, coupons contained within a box of a particular product for future sales of that particular product have the advantage of substantially reaching only customers interested in that particular product. Accordingly, coupons can offer a major cash incentives while still being cost-effective. Repeated couponing coupled with good product quality are a very effective means of maintaining market share and building customer loyalty. Likewise, line extension marketing, particularly after the requisite period of loyalty-building, and same product future sales couponing, is also a particularly effective means of extending market share in related areas.
However, coupons are a time-intensive task at the consumer end, and consequently they appeal to a limited market. Moreover, coupons may breed consumer resentment in non-users. Coupons slow down cash register lines, and show some consumers that other consumers are paying less for the same goods. In an attempt to deal with these problems, supermarkets often will make store circulars including coupons available at the cash register, thus allowing consumers to request a coupon and obtain a discount. However, this also has the unwanted effect of further slowing down the cash register lines and increasing impatience among other consumers.
In recent years, and an attempt to avoid these problems, electronic coupons have been introduced at many stores. Customers are given cards which they present at the cash register to obtain discounts on selected items as a reward for their loyalty. In addition, such electronic couponing has the advantage of generating demographic and marketing data, keyed to individual customers and their individual purchasing preferences. Thus, electronic couponing held out the potential of reducing costs with mechanisms and effects similar to that of paper couponing, but without the cost of paper distribution and with the additional payback of marketing data, enabling more precise and cost-effective marketing and concomitant increased delivery of value to the consumer.
However, in many cases the cards cause negative reactions from customers, who while making their purchases neglected to present them, thus resulting in their being charged a higher price and, perhaps, not realizing that until they have left the store. In an effort to avoid this sort of problem, cashiers are instructed to ask consumers if they have an electronic discount card, to remind those consumers, and, if the store decides that the policy is desirable, to enter a store discount number into the register to give the consumer the discount.
This, however, substantially neutralized many of the advantages of the electronic couponing system. Entry of the store card number negatives collection of marketing information. Making the coupon discounts available to all substantially destroyed the incentive of the coupon. While advertising costs for publication of coupons was avoided, the advertising value associated with the coupons was also lost.
Many service businesses also attempted to achieve growth in market share using consumer incentives to build and/or maintain market share. For many years, banks offered consumers gifts if they opened a new account at a particular bank. However, such promotions are of relatively limited value and are not generally employed today. Credit card issuers also attempt to build market share by offering consumers such incentives as airline miles, cash rebates and products in exchange for use of their credit card. In this respect, such incentive systems are reminiscent of much older stamp book promotion systems, where consumers were given books which were to be filled with stamps which were awarded in response to purchase size at each purchase. However, more modern systems have the advantage of avoiding the cost of stamps, books, distribution, and redemption.